EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 30.A, Problem 2ADQ
To determine
Investment spending and its effect on the Aggregate Expenditure and the Aggregate Demand – Supply Model.
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Students have asked these similar questions
2.
L Give Up!
Suppose the Japanese economy has been experiencing slow growth. As a result, the Prime Minister, who thinks John Maynard
Keynes was the greatest economist ever, has decided to increase government spending. The Prime Minister asks the head of
the economic council to determine the increase in government spending necessary to bring the economy to full employment.
Assume there is a GDP gap of 1 trillion yen and the marginal propensity to consume (MPC) is 0.60.
What advice should the head of the economic council give the Prime Minister?
O The recessionary gap is equal to 400 billion yen.
O The inflationary gap is equal to 400 billion yen.
O The recessionary gap is equal to 625 billion yen.
O The inflationary gap is equal to 625 billion yen.
Suppose consumption function is specified as C= $200 + 0.75Ya planned investment is $600, net taxes are $400, and
government spending totals $500 of a hypothetical economy in 2020. Find algebraically: LO 3
A. The equilibrium level of aggregate output by equating aggregate output and planned aggregate expenditure.
B. Consumption when aggregate output is at the equilibrium level.
C. Saving when aggregate output is at the equilibrium level.
D. Establish that leakages equal injections at the equilibrium level of aggregate output.
Figure: Aggregate Expenditures Curve II
Aggregate
expenditures
(per year)
$800
Reference: Ref 11-16
45-degree
line
AE
$2,000 Real GDP (per year)
(Figure: Aggregate Expenditures Curve II) The slope of the aggregate expenditures curve in the aggregate expenditures
model shown in this figure is:
O 45 degrees.
O 0.6.
O 0.5.
O 0.25.
Chapter 30 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
Ch. 30.7 - Prob. 1QQCh. 30.7 - Prob. 2QQCh. 30.7 - Prob. 3QQCh. 30.7 - Prob. 4QQCh. 30.A - Prob. 1ADQCh. 30.A - Prob. 2ADQCh. 30.A - Prob. 1ARQCh. 30.A - Prob. 2ARQCh. 30.A - Prob. 1APCh. 30.A - Prob. 2AP
Ch. 30 - Prob. 1DQCh. 30 - Prob. 2DQCh. 30 - Prob. 3DQCh. 30 - Prob. 4DQCh. 30 - Prob. 5DQCh. 30 - Prob. 6DQCh. 30 - Prob. 7DQCh. 30 - Prob. 8DQCh. 30 - Prob. 9DQCh. 30 - Prob. 1RQCh. 30 - Prob. 2RQCh. 30 - Prob. 3RQCh. 30 - Prob. 4RQCh. 30 - Prob. 5RQCh. 30 - Prob. 6RQCh. 30 - Prob. 7RQCh. 30 - Prob. 8RQCh. 30 - Prob. 9RQCh. 30 - Prob. 1PCh. 30 - Prob. 2PCh. 30 - Prob. 3PCh. 30 - Prob. 4PCh. 30 - Prob. 5P
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Similar questions
- 1. Aggregate expenditures and income The following table shows consumption (C), investment (1), government spending (G), and net exports (X-M) in a hypothetical economy for various levels of real GDP (Y). Assume that the price level remains unchanged at all levels of income. All figures are in billions of dollars. Compute aggregate expenditures for each income level and fill in the last column In the following table. Y с G 500 525 250 150 600 550 250 150 575 250 150 600 250 150 -200 900 625 250 150 -200 700 800 AL AGGREGATE EXPENDITURES (Billions of dollars) The following graph shows real GDP on the horizontal axis and aggregate expenditures (AE) on the vertical axis. The orange line (square symbols) represents a 45-degree (Y-AE) line. 1000 Use the blue points (circle symbol) to plot the aggregate expenditures line for this economy. Line segments will automatically connect the points. 900 300 I 700 X-M Aggregate Expenditures -200 725 -200 750 775 800 825 600 500 + -200 AE line *+…arrow_forwardWhy is the aggregate demand curve downsloping? Specify how your explanation differs from the explanation for the downsloping demand curve for a single product. What role does the multiplier play in shifts of the aggregate demand curve?arrow_forwardSuppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy�s multiplier is 3. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? The aggregate demand curve will shift_____ by $____ billion. In what direction and by how much will it eventually shift? The aggregate demand curve will shift_____ by $____ billion..arrow_forward
- 9. Refer to the accompanying table in answering the questions that follow: L011.8 (1) Possible Levels (3) Aggregate Expenditures (2) Real Domestic (C, + 1, + X, + G), Millions of Employment, Output, Millions Millions 90 $500 $520 100 550 560 110 600 600 120 650 640 130 700 680 a. If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? What will be the consequence of this gap? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary expenditure gap or the recessionary expenditure gap? What is the multiplier in this example? b. Will there be an inflationary expenditure gap or a recessionary expenditure gap if the full-employment level of output is $500 billion? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap? What is the multiplier in this example? c. Assuming that investment, net exports,…arrow_forwardRefer to the information provided in Figure 1 below to answer the questions that follow Figure 1 AE 1,600 400 S450 1,600 Aggregate output, Y (billions of dollars) 10. Refer to Figure 1. Which of the following equations best represents the aggregate expenditure function? O AE = 1,200 + 0.8Y. %3D O AE 1,600 + 0.4Y. %3D O AE = 1,000 + 0.5Y. %3D AE = 400+ 0.75Y. Planned aggregate expenditure, AE (billions of dollars)arrow_forwardWhich of the following changes in personal income tax would lead to the smallest increase in consumption? O a. O b. a $15 000 decrease in taxes, if MPC equals 0.6 O c. a $30 000 decrease in taxes, if MPC equals 0.25 Oe. a $20 000 decrease in taxes, if MPC equals 0.5 O d. a $12 000 decrease in taxes, if MPC equals 0.75 a $10 000 decrease in taxes, if MPC equals 0.2arrow_forward
- LAST WORD What is Say's law? How does it relate to the view held by classical economists that the economy generally will operate at a position on its production possibilities curve? Use production possibilities analysis to demonstrate Keynes's view on this matter.arrow_forwarde Page 426 13.1. What is the aggregate demand-aggregate supply model? Fill in the blanks to complete the following passage concerning the history of U.S. recessions. Since the year 1900, the United States has experienced recessions. Since 1970, recessions have occurred. 2 7 22 42 + LO 5 10arrow_forwardIn the Keynesian AE model, if the autonomous components of consumption, investment, government spending, and net export spending total $100 billion, and the MPC is 0.75, what will unplanned changes in inventory be when output is $345 billion? O-$4 billion O $4 billion O $5 billion O -$5 billion When output is higher than the intersection of the Keynesian AE and the 45- degree line, which of the following can we expect to happen? Osavings to be negative and consumption to fall O inventories to rise and output to fall O inventories to fall and output to rise consumers to expect higher incomes and consumption to risearrow_forward
- Which of the following is true? O An increase in aggregate demand is the same as a downward shift in the total expenditure function O An increase in aggregate demand is the same as an increase in aggregate supply O An inward shift of the aggregate demand curve is the same as an upward shift in the total expenditure function O An increase in aggregate demand is the same as an upward shift in the total expenditure functionarrow_forward/se estion 5 Suppose you were looking at an economy where the consumption function is; C = 50 +0.75Y And you know that investors want to spend 500 at every level of income. In other words 1-500 a. What is the equilibrium level of income? b. If the full - employment level of income is 2000, is there a recessionary gap? If so, how large is the gap? c. What will happen to the equilibrium level of income if investors become pessimistic about the country's future and reduce their investment to 400? d. Is there an inflationary or recessionary gap now? How large? marks) Format Tools Table TV- BIU AV V T²v / povarrow_forwardIn a Keynesian cross diagram, if the marginal propensity to save increases, O a) the aggregate expenditure function will shift to the right, but its slope will not change b) the aggregate expenditure function will shift to the left, but its slope will not change O c) the slope of the aggregate expenditure function will increase O d) the slope of the aggregate expenditure function will decreasearrow_forward
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